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- From April 2026, there is an extension to the temporary non-resident rules which apply where an individual leaves the UK but fails to cease UK tax residence for more than five complete tax years. Now all distributions from a close company (including post-departure trade profits) are subject to tax under these rules in the year the individual returns to the UK.
- Excluded property trusts settled before 30 October 2024 (in broad terms, discretionary trusts settled with non-UK assets by non-domiciled individuals before the October 2024 Budget) will have a cap on inheritance tax charges of £5m over every ten years.
- This relates to the ten yearly anniversary charges (up to 6%) and exit charges (also up to 6%) every ten-year cycle. This measure may encourage those with large offshore trusts (£83m plus) to remain in the UK. It also means that long-term residents leaving the UK (which can still mean the trust faces an anniversary charge and an exit charge when the settlor ceases being a long-term resident) are limited to £5m in the ten-year period of departure.
- Unfortunately, the cap of £5m cannot be used for multiple trusts settled by one settlor – it is a cap of £5m per trust.
- From 6 April 2026, it will no longer be possible for an individual who is not UK long term resident to shelter agricultural property from inheritance tax by holding such property via a non-UK entity. This brings agricultural property into the same inheritance tax treatment as residential property (always subject to inheritance tax when closely held). However, commercial property can still be sheltered from inheritance tax by individuals who are not long-term resident in the UK using an offshore structure.
- From 6 April 2026, the £1m allowance for Business Property Relief and Agricultural Relief will be transferable between spouses and civil partners. This means that there is the potential for £2m of relievable assets to be left on the death of the surviving partner free from Inheritance tax.
- With immediate effect, it will not be possible to avoid an inheritance tax charge on a trust by changing the location of the assets at the time of the charge. This is a targeted anti-avoidance measure aimed at those looking to avoid the exit charge on non-UK assets held in trust when the settlor ceases to be a long-term UK resident.
- As previously announced, the government are reviewing offshore anti-avoidance legislation. Currently the motive defence from the attribution of income and in particular the motive defence from the attribution of gains to certain offshore structures can mitigate significant tax charges for beneficiaries of offshore trusts. Trustees and UK resident beneficiaries of offshore trusts should seek advice about whether value can be extracted by relying on these rules whilst they remain. It is thought any changes to the legislation would likely apply from 6 April 2027 or later.
- Inheritance tax relief will be limited to gifts made directly to UK registered charities and clubs.
- From April 2026, there will be a 2% increase in savings and dividend income, however the highest rate for dividend income will remain unchanged at 39.35%.
- From April 2027 there will be a similar 2% increase on all property income, arising the highest rate to 47%.
- An annual “mansion tax” will be introduced from 2028 for residential property worth over £2m with the highest charge for those worth over £5m. This is added to the council tax liability but will be charged on owners, rather than occupiers, which means landlords and owners of multiple properties will be more severely impacted. The delay in this measure being introduced is thought to account for the valuation exercise required for the properties currently in bands F, G, and H for council tax. The last time these properties were valued was in 1991.
- The government has made an immediate change to the taxation of protected cell companies which hold UK real estate. Each protected cell will be looked at for the purposes of applying the “property richness” test for non-resident capital gains tax purposes rather than the protected cell company as a whole.
- This will impact individuals who own UK real estate assets using a protected cell company on the basis that their family’s total interest in the company is below 25%, which was previously thought to potentially take them outside of anti-avoidance provisions applicable to family companies.
- Non-UK resident individuals who have invested in Collective Investment Vehicles currently rely on an Extra-Statutory Concession that exempts them from the requirements to make a double taxation treaty claim. This concession will now be formalised in legislation.
- Individuals and trustees transferring a business to a company will need to make a claim for incorporation relief through their self-assessment tax return. With the increased property taxes, there will be increased demand from individuals wanting to transfer property assets to a company. HMRC are alive to aggressive planning using incorporation relief, and this measure will give them more information of the use of the relief.
Conclusion
In some ways, this was a less eventful Budget in terms of impact on high-net-worth international clients than anticipated. However, there was a higher number of changes than expected, which means the tax exposure and filing requirements of many clients has become more complicated.
The increased tax rates on savings, dividend and property income held personally will undoubtedly cause even more UK clients to consider a Family Investment Company structure, which can allow them to benefit from the lower corporation tax rate (25%) on such income, and/or the corporation tax dividend exemption.